平狄克微观经济学Market Power∶ Monopoly and Monopsony.ppt

Chapter 10 Chapter 10 Market Power: Monopoly and Monopsony Topics to be Discussed Monopoly and Monopoly Power Sources of Monopoly Power The Social Costs of Monopoly Power Monopsony and Monopsony Power Limiting Market Power: The Antitrust Laws Review of Perfect Competition P = LMC = LRAC Normal profits or zero economic profits in the long run Large number of buyers and sellers Homogenous product Perfect information Firm is a price taker Review of Perfect Competition Monopoly Monopoly One seller - many buyers One product (no good substitutes) Barriers to entry Price Maker Monopoly The monopolist is the supply-side of the market and has complete control over the amount offered for sale Monopolist controls price but must consider consumer demand Profits will be maximized at the level of output where marginal revenue equals marginal cost Average and Marginal Revenue The monopolist’s average revenue, price received per unit sold, is the market demand curve Monopolist also needs to find marginal revenue, change in revenue resulting from a unit change in output Average and Marginal Revenue Finding Marginal Revenue As the sole producer, the monopolist works with the market demand to determine output and price An example can be used to show the relationship between average and marginal revenue Assume a monopolist with demand: P = 6 - Q Total, Marginal, and Average Revenue Total, Marginal, and Average Revenue Revenue is zero when price is $6 Nothing is sold At lower prices, revenue increases as quantity sold increases When demand is downward sloping, the price (average revenue) is greater than marginal revenue For sales to increase, price must fall Average and Marginal Revenue Monopoly Observations To increase sales the price must fall MR P Compared to perfect competition No change in price to change sales MR = P Monopolist’s Output Decision Profits maximized at the output level where MR = MC Cost functions are the same Monopolist’s Output Decision At output levels below MR =